Money in the Great Recession
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Money in the Great Recession

Did a Crash in Money Growth Cause the Global Slump?

Edited by Tim Congdon

No issue is more fundamental in contemporary macroeconomics than the causes of the recent Great Recession. The standard view is that the banks were to blame because they took on too much risk, ‘went bust’ and had to be bailed out by governments. But very few banks actually had losses in excess of their capital. The counter-argument presented in this stimulating new book is that the Great Recession was in fact caused by a collapse in the rate of change of the quantity of money. The book’s argument echoes that on the causes of the Great Depression made by Friedman and Schwartz in their classic book A Monetary History of the United States.
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Chapter 3: UK broad money growth and nominal spending during the Great Recession: an analysis of the money creation process and the role of money demand

Ryland Thomas

Abstract

This chapter shares a similar conceptual framework to the previous chapter, while criticizing some of its conclusions. The chapter argues that QE’s positive impact on the quantity of money in the UK was less than the size of QE operations because of ‘leakages’, while noting that changes in money’s velocity of circulation – as well as changes in the quantity of money – mattered to the cyclical path of demand and output from 2008 to 2011.

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